Last month I talked about the idea of cashing in today by selling some of your residual payments. This month I'd like to talk about some of the specific things that you need to be doing FAR in advance to make it a lot easier and a lot more valuable.
    Believe it or not it all starts at the very beginning of your relationship with an ISO or Processor. That's right. What's in your contract? Does it give you the ability to reassign your residuals? Does the ISO have to approve the buyer? Do they have a right of first refusal? How long do they have to exercise that right? Will they provide additional reporting and play ball in a sale? Are there a lot of clauses that will allow them to stop paying your residuals? Let me say that one again. Are there a lot of clauses that allow them to stop paying your residuals? Just because your recruiting literature says “lifetime residuals,” and it says it in one place on your contract, don't think there aren't 15 other places that say if the processor or ISO canceled for A,B or C then lifetime residuals do not apply. So, make sure you have a good contract, because if you don't, a buyer will either NOT BUY it or will PAY MUCH LESS.
    As smart as we'd all like to think we are, a good attorney with ISO or MLS contract experience is a must. Finally, I'll always say that contracts are only as good as the people that stand behind them. So what's the reputation of your ISO / Processor?
    After the contract the next most important thing is reporting. As simple as this may sound I've seen people think they could sell their residual just by having the monthly deposit reports. Any legitimate buyer will want to see detailed reporting. The more detailed the better. You know I still see some residual reports in this business that just have: Merchant Name, Merchant #, Volume, Costs and Profit in a simple excel or Word document! What are you kidding? They could have a monkey in the back room making up these #'s. You really should shoot for details on EVERY revenue stream. That's Count, Cost Rate, Sell Rate and Profit for EVERY revenue stream. (Check Cards, Debit, Statement, Qualified, Mid. & Non- Qualified, Transaction, Annual, Cancellation and More)
    Next, are you going to sell your business along with your residual stream? Yes, one thing that may make your residual more attractive to a buyer is continued application flow. What's called the “sales engine” can add significant value to the deal. Maybe the buyer is in need of a regional office and you already have one. Maybe you have some unique referral sources or sales strategies that suit the buyer's growth plans? As with any type of purchase and especially when the buyer may want more than just residuals, it's very important to have your house in order. For example, do you have financials? Can you provide professional accounting statements? Do you have good contracts with your agents or referral sources? Do you have a solid, and documented infrastructure or are you the only one who “just knows” how things are done. Just think, would a new computer be worth more with or without a help manual?
    As a general rule the more organized and documented you are, the easier it will be to complete a buyout deal and the more money you are likely to receive. Now I know that it sounds time consuming and expensive to run a tight ship, but that really doesn't have to be the case. Outsourcing for a good attorney can really be done for a few hundred dollars a contract if you use them sparingly. Monthly professional accounting can often be had for $100 to $200 per month if you're not too large. These things will not only pay big dividends if you go to sell, but will help to protect and manage your business better along the way.
    Lastly, don't be one of those people who believes the world is going to throw money at you just because someone else sends you a payment every month. Be prepared to share all the above documentation with any interested party. It's a good idea to put in place a LOI (letter of intent) with some type of NDA (non-disclosure agreement) so that the sensitive information that is shared stays confidential. I've seen people want to sell their residuals, but then be afraid to share any information with anyone. So no matter what your exit strategy, go about it in an organized and methodical way.